College can be unnerving, especially if your roommate has hair on his knuckles and howls at the moon. But for many young adults, the biggest shock comes after graduation, when they're confronted with thousands of dollars in student loans that must be repaid.

Record low interest rates have made those payments more manageable, but that's about to change. Federal student loan rates are adjusted every July 1, based on rates for short-term Treasury bills, which have been rising all year. Loan rates going up Rates on Stafford student loans are expected to rise to the highest level since 2002 on July 1:Academic year

Unless short-term interest rates fall between now and the May T-bill auction, which appears unlikely, rates on student loans will edge above 5% in July, the highest rate since 2002. The current rate on federal student loans is 3.37%.

On a $20,000 loan repaid over 20 years, the rate increase would add more than $4,500 in interest, says Cheryl Watson, spokeswoman for Nelnet, a student loan provider based in Lincoln, Neb.

If you are out of school and paying your student loans, you can shield yourself from higher rates by consolidating before July 1. When you consolidate, you lock in the weighted average of all your loans, up to the nearest one-eighth of 1%.

At the current rate, consolidating would lock in a rate of 3.375% for the life of your loan.

When you consolidate, you also stretch out the payment period for up to 30 years. By extending the term of the loan, you reduce your monthly payments, a useful feature for recent grads with little extra cash.

You can always increase your payments later: There are no penalties for paying off your loan early.

Not everyone can consolidate. Most lenders require a minimum of $7,500 in loans, and some set the minimum balance at $10,000. Federal law prevents most borrowers who have already consolidated from doing so a second time, even if they locked in a higher rate.

But if you're eligible, this may be your last chance to lock in record low rates.

"It's not going to get any better than it is now," says Christopher Chapman, chief executive of ALL Student Loan, a Los Angeles-based student loan provider.

The Bush administration's budget for fiscal 2006 proposes raising the limits on the amount of federal loans students can borrow. To pay for the increase, the administration recommended changing the loan consolidation program. Borrowers would still be permitted to consolidate and extend the term of their loans, but interest on loans would fluctuate with market rates. Rep. John Boehner, R-Ohio, who heads the House Education and the Workforce Committee, has introduced legislation that would scrap fixed-rate consolidation loans.

Supporters of the change, which include many big lenders, say scuttling fixed-rate consolidation loans would free government funds to help students pay for college. Student groups counter that it would cost debt-burdened graduates thousands of dollars in additional interest.

Watson believes there's a "high probability" the Republican-controlled Congress will adopt the Bush administration's proposal. It won't be retroactive, so if you consolidate now, your loan rate won't be affected.

Making it happen

Because the July 1 loan rate will be determined in late May, borrowers have plenty of time to consolidate before the deadline. But if you want to get the paperwork done, you don't have to wait. Most lenders offer a "best rates" program that allows borrowers to hedge their bets. If the benchmark T-bill rate rises at the May auction, the lender will process your application before July 1, locking in the current rate. If rates decline in May, the lender will hold off until after July 1 so you'll get the lower rate.

If all your loans are with one lender, you're required to consolidate with that lender, unless it doesn't offer loan consolidation. If you have loans with more than one lender, you can consolidate with anyone, says Martha Holler, spokeswoman for loan provider Sallie Mae.

When shopping for a loan consolidator, look for sweeteners that will lower your rate. Many lenders offer a quarter-point reduction for borrowers who agree to have payments automatically debited from their bank accounts. Some also offer another reduction after you make 36 on-time payments.

You can also reduce your rate by consolidating during your grace period, the six-month window between graduation and the required time to start making payments. Interest accumulates during this period, but at a lower rate.

You can lock in that rate by consolidating during the grace period. If you graduate this spring and consolidate before July 1, you can lock in a 2.875% rate.